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Tax Year End: What you absolutely must do before 28 February 2018

by , 22 February 2018
Tax Year End: What you absolutely must do before 28 February 2018
Tax year end is fast approaching.

This means, next week Wednesday, your tax breaks for the 2017/2018 year will expire.

Fortunately, it's not too late to maximise all your benefits before you lose them.

But don't worry, because today I'm going to show you how to do this…

Three tax breaks every investor receives
As a private investor you receive three main tax breaks:
  1. Retirement Savings (RAs)
  2. Tax Free Savings Accounts (TFSAs)
  3. Section 12 J
Let’s go through each of these in greater detail…
#1: Retirement Annuities (RAs) – The “Granddaddy” of allowances
For most individuals, it is the BIGGEST tax break. The rules for smart investors are simple.
  • You are allowed to put away 27% of income until you hit the maximum of R350,000 per year.
  • Must invest in Regulation 28 compliant funds.
  • Can only take money out after reaching age of 55 years (with limited exceptions).
  • You must invest with pre-tax money.
For most people, maximising their RA allowance is the best financial move that they can make.
Unfortunately, very few people take full advantage of this. This may be due to the fact that they believe the only way to invest in an RA is via a unit trust. In reality, you have many options including share portfolios.
There are also fears about penalties and upfront fees. Again, the reality is that you don’t have to pay these. A fair broker should never charge you penalties or an upfront fees.
#2: Tax free savings accounts – Pay less tax and build wealth for you and your family
There is literally no downside to having a TFSA. You only get benefits and no penalties versus other investment options.
The rules are as follows for 2017/2018…
  • Yearly limit of R 33,000 per person, with a lifetime limit of R500,000
  • Can invest in ETF’s and Unit Trusts
  • Can take money out whenever you wish
  • Pay no tax on returns
Everyone should have a tax free account. But they really shine when you open them up for your kids. It’s a far better way to save for their education than most education policies. It can also help them start their lives when they become adults.
A maximum contribution of R33,000 per year starting when a child is born and ending when you hit the maximum after about 15 years, could result in over R4 million when the child is 21. At age 40, it could grow to as much as R60 million. If the child keeps it until retirement at 65, the total is over R2 billion.
That’s right, you can make your child a billionaire. Even if you take out inflation. In today’s money, it will be over R40 million. That translates into a monthly retirement income of R200,000 per month in today’s money – A comfortable retirement by almost anyone’s definition.
#3: Section 12J -  The new kid on the block
Section 12J has started to become popular over that last year or so with many firms popping up offering the product. Unfortunately many providers seem to believe that the tax break is so great that they fail to provide you with significant return beyond the rebate. That said, properly utilised, Section 12J could be one of the most powerful tools for high income individuals.
The rules are as follows:
  • Investment into 12J structure is tax free if you stay invested for 5 years.
  • You can invest in most businesses, except property and some service companies.
  • There are limits on individuals share of any fund and fund’s share of any investment.
  • There are larger allowances for junior mining companies.
This is a complicated product class and you are investing in unlisted assets. This means that you will lack many of the protections that investors in listed assets are used to. Therefore, it’s recommended to have an independent advisor assist you. 
If you need assistance and want to maximise your efficiency, feel free to contact me on support@randswiss.com.
With only two weeks to go, time is very limited, so MoneyMorning members will take preference on individual appointments!
Viv Govender,
Portfolio Manager, Rand Swiss.
P.S. In the South African Investor, we reveal some other smart techniques you can use to pay less tax. For example, in a 2017 issue, we revealed a secret strategy professional investors use keeps R65,600 out of SARS hands and in their pockets!

Tax Year End: What you absolutely must do before 28 February 2018
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